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Fountain set profit margins touch 8.6% in sept’11-dec’12

Fountain set profit margins touch 8.6% in sept’11-dec’12 Source:
Date: 16-04-2013
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Fountain Set Limited, a global leader in the manufacturing of knitted fabrics, announces its audited consolidated final results for the sixteen months ended 31 December 2012.
In the financial year of 2012 (“FY2012”), the Group’s revenue was approximately HK$9,167.1 million. The Group’s core business, production and sales of dyed fabrics, sewing threads and yarns, generated revenue of HK$7,977.1 million, which accounted for 87.0% of the Group’s total revenue.

Revenue from production and sales of garments was HK$1,190.0 million, accounted for 13.0% of the Group’s total revenue. Loss attributable to owners of the Company amounted to approximately HK$324.2 million. Gross profit margin for the period under review was 8.6%.
Basic loss per share was HK33.5 cents. The Board has resolved not to pay any final dividend for the period under review
With effect from 10 August 2012, the financial year end of Fountain Set has been changed from 31 August to 31 December. This annual report accounts for financial results of the Group from September 2011 to December 2012, with a total of 16 months instead of the usual 12 months. FY2012 was one of the more difficult years for the textile and apparel industry and the Group.

The adverse economic environment in North America and Europe caused by factors including high unemployment rate and concerns over default of European debts continued, resulting in weak demand for textile products and further deterioration in the demand for textile and apparel products.
At the same time, some large scale local brands and retailers in China have experienced over-inventory situation which negatively affected the demand for the textile products. During the period under review, there was unusually high price premium of Chinese cotton over that of the rest of the World which mainly as a result of the purchase of domestically produced cotton by the Chinese government at a guaranteed minimum price.

Coupled with the surging labor cost, high energy cost and RMB appreciation, each operator of the industry value chain has experienced one of the toughest operating environments in the past decade.
During the period under review, the Group has disposed of the textile machinery business at the aggregate consideration of RMB90 million and has also ceased the cotton spinning business. The scale-back actions of our non-core businesses are in-line with our strategic business plan to reallocate our resources to the Group’s principal businesses, to realize its investment in China, reduce gearing and increase the liquidity of the Group.

In respect of the disposal of the textile machinery business, the Group has recorded a gain from the disposal of approximately HK$43.1 million.

For the disposal of the cotton spinning business, the Group has made a loss from the disposal of approximately HK$8.3 million. The net proceeds from these two disposals have been used for loan repayment and general working capital of the Group.

Mr Victor HA Kam On, Vice-Chairman and Chief Executive Officer of Fountain Set, said, “The Group is committed to continue investing in infrastructure, machinery and information systems according to the operating needs and future development plans. With several fabric mills and garment factories within the Group, regular infrastructure maintenance and machinery upgrades are necessary to ensure continuous improvement in operations.

The Group has been configuring SAP as our enterprise resources planning systems and the target implementation date is early 2014. It is expected that the overall operational efficiency and productivity will be highly improved.”
Madam LI Lan, Chairman of Fountain Set, said, “To the Group’s Shareholders and the Board, FY2012 was no doubt a year of great change.

Chinatex Corporation (“Chinatex”), based on Fountain Set’s 40 some years of development history during which the foundation for the Group’s operation and industry influence was established, invested approximately HK$511 million in Fountain Set (Holdings) Limited in June 2012 through the placement of new share and has since become the Group’s single largest shareholder. The injection of the new capital has effectively reduced the Group’s financial costs, thus enhancing our capital strength.

This has strengthened the Group’s ability to tackle severe challenges and to implement internal adjustments and reforms.
At the same time, Chinatex and the Fountain Set Group leveraged their individual strengths to provide the Group with active support in the supply of raw materials. The Group has also restructured the Board accordingly and I had the honor to be elected as the new Chairman of the Board.

Under the leadership of the new Board, the management has made tremendous effort in the last half year of the past financial year by adopting a series of measures to reduce operating and management costs and to control losses with visible results. The Group’s overall performance has since stabilized and begun to show favorable improvements.”
Apart from continuously satisfying the needs of our existing customers, the Group will also carry on the development of new working relationships with brands and retailers in emerging markets such as Russia and Eastern Europe. The Group is also committed to enhancing our research and development, product quality as well as technical expertise.

We will actively explore new materials and technologies in fabric production and continue developing higher added-value products for our customers. Fountain Set seeks to continue enhancing our operating efficiency including fuel and water consumption saving as well as cost structure while increasing speed-to-market at the same time.

Without adding extra production capacity, we will continue to invest in new equipment and machines to enhance our production capabilities and level of automation. Inaddition, the Group is committed to corporate social responsibility and upholding environmental protection measures. Fountain Set remains cautious of the global macro-economic environment in 2013.

Nevertheless, the Board and the management believe that the Group’s strategies and the major initiatives are rational and on the right tracks thus maintain a relatively optimistic outlook on business for the longer term.

Going forward, the Group commits to enhancing our operational efficiency through a series of proactive measures to achieve sustainable and financially stable corporate development.
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